Big Bureaucracy: The CFPB Turns 2

The Consumer Financial Protection Bureau is everything that both proponents and critics thought it would be, and that’s not a good thing.

The Consumer Financial Protection Bureau (CFPB) has now reached its second birthday. At two years old, it has clearly become just what many of us expected: an ambitious and ballooning bureaucracy, able to operate outside the normal checks and balances of our democratic government.

The opponents and proponents of the CFPB entirely agree on one thing: it was explicitly designed by its creators to evade the normal constraints of the American constitutional structure. Two years have taught us that the design has been remarkably successful in doing so.

Both sides of the debate agree on this fact. They of course do not agree on whether this is good or bad.

The CFPB is an offspring of the notorious Dodd-Frank Act, of which the best description is the “Faith in Bureaucracy Act.” For those sharing this faith, the CFPB’s design is a wonderful thing. It is a modern implementation of Woodrow Wilson’s dream of bureaucratic “experts,” who should not have to be bothered with irrelevant distractions like the elected representatives of the people.

Accordingly, the CFPB is funded by the revenues of the Federal Reserve, which is to say general tax revenues, without needing approval or appropriation by Congress. It simply siphons off some of the seigniorage from the sovereign monopoly on issuing depreciating paper money. It is effectively levying taxes.

The CFPB also has spending power, with significant discretion in taking money from civil penalties — that is, money belonging to the government — and deciding, without Congress’s input, how to spend it, such as by giving it to its friends and political supporters. This is consistent with that great definition of why anyone wants political power: “So we can reward our friends and punish our enemies.”

The CFPB is certainly a body with impressive political power and unfettered discretion to threaten and coerce — naturally, all for what it will always see as a good cause.

Observing the facts of the CFPB’s successful design dismays those of us who do not feel a shining faith in bureaucracy, but instead view it realistically. Contrary to the naïve Wilsonian dream, no one wielding the compulsive power of the state has either enough virtue or enough knowledge to operate without checks and balances.

Also naturally, the CFPB has attracted a large staff of beneficiaries of the Wilsonian dream, already numbering over 1,200. They can enjoy the power of threatening and coercing others, while it turns out, being paid well above the scale of other government employees. According to an analysis by The Washington Examiner, 741, or over 60 percent, of the CFPB’s employees make salaries of $100,000 or more. The CFPB is also in the process of preparing luxuriously renovated new headquarters. What a surprise all of this is when there are no congressional controls on their budget or congressional oversight!

Moreover, the CFPB’s director, who began the job with a questionable and probably illegal “recess” appointment, has now been safely confirmed. All the makings of an imperial bureaucracy are in place.

Observing this, and observing the facts of the CFPB’s successful design, dismays those of us who do not feel a shining faith in bureaucracy, but instead view it realistically. Contrary to the naïve Wilsonian dream, no one wielding the compulsive power of the state has either enough virtue or enough knowledge to operate without checks and balances. Since the employees of the CFPB are not angels, to paraphrase James Madison, we need external controls on them. This is a familiar and correct foundational idea of the American Republic.

Just how correct it is will likely continue to be demonstrated as the CFPB gets older and even bigger than it already is. “Expect an Even Bolder CFPB in Year Three” runs a recent headline in the American Banker. I imagine this is a good prediction. Yes, the CFPB will grow even more into exactly what we expected: an active, politicized, and uncontrollable bureaucracy with wide discretion, expansive ambition, and a burning desire to reward its friends and punish its enemies.

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Alex J. Pollock is a resident fellow at the American Enterprise Institute in Washington, DC. He was President and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004.